Examining Inequality Graphically

We’ve all heard some crazy facts about the wealth and income gap between the rich and poor in America. In fact, the Occupy Wall Street movement was based off of that. Exactly how rich are the super rich? I’ve collected some interesting graphs.

Wealth inequality

One of the most famous ways of measuring wealth inequality in a country is with the Lorenz Curve and the Gini Coefficient:

The Lorenz Curve measures the proportion of the population against the proportion of wealth they own. The diagonal line through the middle is the ray or line of equality—closer the curve gets to the line of equality, the more equal the society. The area marked S shows the degree of inequality in the country. We don’t need to learn to calculate the area S, but it’s expressed as a percentage or decimal, or the Gini Coefficient. The narrower and smaller the area, then, the more equal the society. Gini Coefficients are on a scale of 0 to 100% inequality. The most equal country is Sweden with a Gini of .23 or 23% inequality, not bad. The most unequal country is Lesotho with .63 or 63% inequality. Where does the US fall under this? Our Gini Coefficient is 40%, actually in the middle. This sounds good, but what does that even mean?

Essentially, if we had 10 people sitting in 10 chairs, the reality of the wealth distribution is that 2 people would have 9 chairs and the remaining 8 would need to share 1 chair. But wealth is different than income— wealth inequality has stayed roughly the same, but the income gap has been rising.

Income

This is the income distribution almost everyone knows. Around 33 million workers in the US earn less than $10 per hour. That’s below the poverty line of $25,750 for a family of four.

Actually, this graph from the Social Security Administration shows you there are definitely way more poor people than rich people: more than 20 million earning less than $5,000 a year. But ideally, we’d want a graph that shows most people earning middle incomes, with few people at the bottom and few people at the top.

What is the median income in America right now? A quick Google search will tell you it is $59,039. But if you take away the top 10% of earners, the median income is only $34,074 a year. Does your family make $34,074 a year? Mine falls into the middle class:

Are you in the bottom 90%? If your family makes less than $121,360 a year, you are! Note that this figure places somebody in the upper middle class. The bottom 90% of the population would only have 50.2% of the total annual income in the country. Using the chair example from earlier, that would mean 1 person has 5 chairs, and 9 people share 5 other chairs. Notice that income equality was the highest in the 1960s and 1970s, where 90% of the population made 70% of the income. That’s like 1 person having 3 chairs while 9 people had 7: not ideal, but not too bad either. Income equality has only declined from there.

Basically, the top 20% have 61.8% of all income. 1 person has 5 chairs, another person has 1 chair to himself, and 8 people only have 4 chairs to share between them. But let’s shift focus away from the top 20%, and look at the top 1% of income earners. Remember the Social Security Administration graph near the beginning? It bunched a lot of billionaires together in the last bar. This is a more realistic representation of the spread of wealth at the very top:

Each thin bar represents a $100,000 range. The first bar, up to almost 150 million people or almost the entire working population of 153.34 million Americans, make less than $100,000 per year. The second, short and tiny bar, represents those who make between $100,000 and $200,000 per year. And the rest? All individuals, but this graph is truncated at $50 million per year. It should be 20 times longer to account for billionaires—they make an average of $200 million per year. There are 540 billionaires in the US right now.

Who are those people at the top? They include famous billionaires like Jeff Bezos and Bill Gates, among the super-rich. In 2013, Bezos made $11.3 billion in total income. That’s around $22,745 per minute—it would take Bezos 3 minutes to make more than what the median American makes in a year. Gates made a little more: $11.5 billion, or $23,148 per minute. Compared to them, the average billionaire makes $380 per minute. This visualization below puts words into images:

In the above visualization, Joe Billionaire makes 4,000 times more than the median American worker. And Jeff Bezos makes 150 times more than Joe Billionaire.

Why?

The rise in income inequality is a subject of dispute among academic economists and political pundits alike. There are a number of factors attributed to it. A major one is globalization; it is much easier for companies to move manufacturing plants overseas. The quantity of low-wage, available workers in developing countries has prompted many corporations to move manufacturing jobs away from the US, as well as some high-tech, skilled jobs. In fact, since 2000, the US has lost 20% of its factory jobs—many of them higher-paying union jobs. Service jobs, like in the food industry, has increased, but these are often lower-paid. Labor outsourcing combined with the rise of technology replaces many middle-class jobs in manufacturing.

Speaking of deregulation, the government has been loosening its checks on big businesses, such as agribusiness, pharmaceuticals, energy, and financial companies since the 1980s. As corporations merge and get bigger, unions, on the other hand, have grown smaller. Small and medium-sized businesses are constantly being acquired by some of the industry’s biggest brands. These mega-corporations employ a lot of people, but we are seeing less competition and individual entrepreneurship, which ultimately keeps resources and hiring local—in fact, entrepreneurship has been fading for almost 40 years.

Another factor is the broken tax system, where billionaires can avoid paying the share of income average people pay. Billionaire Warren Buffett argues, “Through the tax code, there has been class warfare waged, and my class has won.” Bill Gates agrees that wealthy people should spread around their income through taxes. He does, however, make a distinction between billionaires who mostly consume, spending on luxury items and storing their wealth for the next generation, and billionaires who invest in value-adding businesses and philanthropy. Instead of discouraging that, he says, we should institute a higher estate tax to make sure the children of billionaires need to work their way to the top.

Perhaps the best way to encourage growth of the middle class is by education. We need to invest in universities, higher education, and vocational schools to create skilled employees. Technology and globalization putting unskilled laborers out of jobs may not necessarily be such a threat. If we counteract it by investing in higher-skilled jobs and building companies that require such jobs, as well as preparing the workforce with the necessary training, there might not be such a surplus of lowly-skilled laborers. Wages would rise overall, and America would become a country with less inequality across the board.